Modi continues to ease startups through tax exemption on Angel Investment

 

There can never be a stop for Modi Government when it comes to provide stability and the environment more conducive for start-ups. PM Modi aggressively plans to promote start-up culture within the country and make it easier for young companies to do business. Modi continues to ease startups through tax exemption on Angel Investment.

PM Modi’s Plan in Pipeline

India has seen a paradigm shift in the past one and a half year. Even the most ardent critics cannot deny that the current Government has infused an energy which was never seen before and galvanized India’s external relations in a positive manner.

 

In the same line, the Ministry of communication and information technology has proposed tax exemptions on stock options given to employees by startups, on capital gains that are invested in new ventures and those made from investing in new firms.

 

Along with the tax exception, the ministry has also suggested that individuals and corporate should not be taxed on capital gains if the money is invested in startup’s security. Proposal to exempt taxes from ESOPs have also been sent, which will make it easier for founders to recruit and retain talented employees. The proposal also includes an easy exit route for startups, which doesn’t hamper the progress and plans of the entrepreneur or VC.

 

Impact on startups

The exemption of tax on such job offers and VC investments will promote entrepreneurship in country and a lot of aspiring entrepreneurs will be able to acquire talented people and build successful businesses. Such a move will trigger a wave of development and progress in India.

 

The move, if pushed through before or in the upcoming Union Budget, would help accelerate the growth of the domestic angel investor community. The existing tax structure in India for startups and venture capitalists is complex. Instead of staying in India, several startups have already relocated to countries like Singapore and Hong Kong to benefit from their easy and helpful corporate rules. Such a reform would surely help to stem the drain of startups and critical intellectual property to overseas locations such as Singapore, North America and the UK.

 

Understanding the current scenerio

When we go through the current laws related to tax, angel investors in Indian startups have to pay 33% short term capital gains tax on all investments while the long-term capital gains tax which involves a holding period of three years, is 20%. This is certainly one of the highest tax structures in the world. When we closely compare the tax structure with Indian stock market, we find that investors of stock market are not required to pay any long term capital gains tax, and for short term investments, the tax is capped at 15% with holding period for one year. Such a structure seems really unfair.

 

Government’s view

In the regard of this tax reform, Government Officials told that “We completely understand that we need to encourage investments, and taxes need to go down if capital funding has to flow into the startup ecosystem so as to recreate a Silicon Valley here.”

 

Once this reform gets approved, Startups currently in the market for angel funding may soon not have to worry about the taxman or relocating overseas. Also, early-stage investing activity in India will get a big boost if the proposals are accepted.

 

With the reform in pipeline, industry is ecstatic and optimistic. If the low tax structure gets approved then India may move ahead in the ranking of ease of start-ups. Starting up in India will become more frenzy now and the very air of this country will blow around entrepreneurship and the startup vision.

For any assistance, visit taxmantra.com

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